Contractors Be Wary – Update On Criminal And Personal Liability Cases

Posted on May 12, 2016

In the case of Sutter v. Henkle, Mercer County App. No. 10-15-14, the court of appeals upheld an oral change order in the form of a settlement agreement and found that a contractor personally bound himself to the settlement agreement. The project at issue involved the construction of a mother-in-law suite for which the homeowner assumed that the contract price included a set of steps to access a rear patio.

Following the completion of the addition, there were numerous discussions about the installation of steps, the size of the steps, the cost of the steps. In the end, the homeowner ended up suing the contractor personally, alleging that the contractor had promised to pay for half the steps and that she memorialized the promise in a daily journal she kept. The contractor did not have any records to support his arguments.

The relationship between the homeowner and contractor was acrimonious to say the least with the contractor testifying in court that “I have bent over backwards, and I told her that several times. I’ve done everything in my power to try to keep you happy, and it’s not possible. And as for every other subcontractor that worked there, had nothing but problems.

The appellate court found that the sour relationship supported a determination that the contractor had agreed to pay for half the cost of the steps to bring the project to a close. The appellate court further found that even though the contractor was incorporated as a limited liability company, that the contractor personally obligated himself because there was no evidence in the record that the homeowner did not have a basis to believe the contractor was personally responsible for the debt for the concrete steps.

Contracts are the parties’ best tool for defining their rights and obligations. In Henkle, the contract failed to specify whether steps were included in the contract price. The contractor could have avoided an argument on the steps by including a clear scope of included and excluded work in the contract. The failure to clearly define the scope of work created an opening for the homeowner to dispute the inclusion of the steps and ultimately resulted in a adverse court judgment against the contractor.

Contracting parties should be careful to document their exchanges in writing. While there is no obligation to document communications, in this day and age of electronic communications the court and juries expect that there will be some written evidence of communications. The party that doesn’t have such evidence faces an uphill battle in court. This is especially true where a party claims some matter of great importance or where a dispute exists. The question arises as to why a party didn’t bother to document a matter by text, email, or in a jounral that it later claims in court was important or substantiates their position in a dispute. The contractor in Henkle learned this lesson when he had nothing in writing to rebut the homeowner’s journal documentation.

Finally, contractors need at all times to respect the corporate form and to act only in their capacity as an officer/agent of the company. Corporate formalities must be observed (such as annual meetings), contracts need to be signed in the name of the company, client communications should set forth the contractor’s title/agency relationship to the company, and separate personal and business finances must at all times be maintained. As shown in the Henkle case, those contractors that fail to do so face claims for personal liability.

Court Imposes Prison Term On Residential Contractor

In February, we wrote about the criminal case against a residential contractor who was found guilty of theft from an elderly couple in the Summit County Common Pleas Court. State v. Alan Vertucci, Case No. CR 2015-07-2165. The charges stemmed from construction services for which $80,000 in payments were made, but which were not completed or were found to be substandard and in violation of code. On April 18, 2016, the court passed sentence, imposing a three-year prison term on the contractor. The sentence is under appeal.